The Federal Reserve again turned to its most powerful weapon to beat inflation on Wednesday, with the central bank raising rates for the sixth time in 2022. This means that borrowing costs for consumers and businesses will continue to rise, an economic pinch that could have a major impact on your finances.
The Fed said it was raising its benchmark interest rateon Wednesday, marking the fourth consecutive increase of that size this year.
Earlier in 2022, the central bank raised rates by small amounts — 0.25 and 0.5 percentage points — but with inflation remaining stubborn, the Fed is turning to bigger hikes to tamp down runaway prices. The impact on Americans has been widely felt, especially at a time when inflation remains high. mortgageFor the first time in two decades, while credit card rates are rising rapidly.
“Surprisingly, it’s a lot more expensive to borrow than it was six months ago, and certainly a year ago,” Matt Schulz, chief credit analyst at LendingTree, told CBS MoneyWatch. “When you associate it with seeminglyOn a daily or weekly basis, it’s been a really tough year for consumers.”
It can only get tougher, experts say.
Here’s what to expect after the Federal Reserve’s latest rate hike.
What is the Fed rate hike?
The central bank raised its benchmark rate by 0.75 percent, bringing down the Fed’s target range from 3.75% to 4%.
That increase was widely expected by economists – but the bigger question is what the Fed will signal about its course for rate hikes in December and later, with a decision by U.S. economist Nancy Vanden Houghton, head of Oxford Economics In a previously published research note.
“Some Fed officials have suggested that a slower pace of rate hikes is on the horizon,” she said.
The stock market jumped on Wednesday after the Fed’s statement, which indicated that future growth could be smaller than the previous series of 0.75-percentage point increases.
“In determining the pace of future growth in the target range, the Committee will take into account the cumulative tightening of monetary policy, with which monetary policy affects economic activity and inflation, and economic and financial growth,” the Fed said in its statement. Wednesday’s statement.
what rate hike cost you had to pay
Every 0.25 percentage-point increase in the Fed’s benchmark interest rate translates to an additional $25 per year in interest on $10,000 in debt.
That means Wednesday’s increase of 0.75 percent would add an additional $75 of interest for every $10,000 in debt.
So far, the Fed’s five hikes in 2022 have raised rates by a combined 3 percentage points — meaning consumers are now paying an additional $300 in interest on every $10,000 in debt. With the additional rate hike on Wednesday, the Fed’s benchmark rate means consumers are paying an additional $375 for every $10,000 in debt.
Credit Cards: Highest Rate in Years
This will have a major impact on consumers who are carrying balances on their credit cards.
Already, credit card rates have jumped in response to the Fed’s rate hike in 2022, with the average credit card rate reaching 22.21% in October, according to LendingTree data. Schultz said it’s the highest since LendingTree began tracking rates in 2018.
“Most of the credit card holders in this country will see an increase in their current card rate within the next month or two,” he said.
This will not affect those who pay off their credit card balances every month, but those who have balances will be charged higher interest. And with inflation still high, there are more AmericansTo keep credit card debt afloat.
About 6 in 10 credit card holders are carrying a balance on their card for at least one year, up from 1 in 10 in 2021,to CreditCards.com.
“We have seen card debt rising very quickly lately, and that is to be expected as so many people lean more on their credit cards to pay for gas or groceries or the central costs of living. It’s gone,” Schultz said.
I have credit card debt. what can i do?
Schultz said there are a few options available for people who are taking on credit card debt and facing higher interest rates from their card issuers.
The best option is to find a zero-percent balance transfer card, which is still widely available. However, these cards – which allow you to transfer your balance from a card that charges a 0% fee for an introductory period – are usually only available to people with a good credit score of 680 or higher. Yes, Schultz said.
Such zero-percentage offers typically charge a balance transfer fee of around 3%, but they also provide breathing room over an initial period of 15 months or more to pay off the loan.
Consumers can also call their current credit card companies and ask them for a lower rate, a request that has a surprisingly high success rate, Schulz said.
“We did a study earlier this year showing that about 70% of people asked for a low APR on their card, but very few people ever ask.”
How will another hike affect mortgage rates?
Mortgage rates rise this year with Fed rate hikes, with typical 30-year loans topping– More than double the rate available at the beginning of 2022.
This translates into a very real cost for the home buyers. Take a home that sells for the US average price of $384,800 and that is purchased with a 20% down payment. At the current mortgage rate of 7.16%, a homebuyer would pay about $750 more per month than a loan at the 3.2% rate earlier this year.
It is possible that rates could be even higher with Wednesday’s increase.
Already, a rise in mortgage rates has sharply cooled the housing market – and economists predict it could be in for more turmoil. Housing prices could fall by as much as 20% next year as mortgage rates continue to rise and the housing market returns to normal in the wake of the pandemic,To Ian Shepherdson, chief economist at Pantheon Macroeconomics.
According to car shopping app CoPilot, loans for cars are getting more expensive, even as car prices come down.
CoPilot said the average used car loan rate increased 1.2 percentage points from March to October. That means the average payment for a used car is about $564 per month, compared to $546 in March, or $1,300 more over the life of the loan. The company said it is making up for the benefit of lower prices.
And the average rate for a 60-month loan for a new car has dropped to 5.6 percent at the end of October, up from 4.9% in August, according to Bankrate.
Savings Accounts, CDs
There’s an upside to another Fed increase: higher rates for savings accounts and certificates of deposit.
The rates on these accounts have risen sharply this year, although theyAs well as other interest-based products, such as mortgages and credit card rates — set by the Federal Reserve — saw an increase.
According to Bankrate, the national average interest rate for savings accounts is 0.16%, although online savings banks tend to offer better offers, with top rates being 3% or higher. Meanwhile, some CDs are offering rates of 4% or higher.
This is certainly better than holding money in cash, but it is still well below the rate of inflation. With inflation exceeding 8% in September, savers are essentially losing money by pooling their cash in a savings account that also pays 3%.